Linden Partners v. Wilshire Linden Associates

Rule of Law:

A seller of commercial property who makes a positive representation of fact, such as the amount of a tenant's rent in an estoppel certificate, has a contractual duty to be accurate. The buyer is entitled to rely on that representation and is not required to conduct an independent investigation to verify its truth, even if they have access to documents that could have revealed the falsity of the representation.

Facts:

• On June 7, 1989, plaintiffs agreed to purchase a medical office building from defendants for $22.2 million.
• The sale agreement required defendants to provide all leases and, before closing, estoppel certificates from tenants confirming lease details, including the current rent.
• A subtenant, Bank Leumi, leased its space from a primary tenant, Wells Fargo Bank; defendants had no direct dealings with Leumi.
• The sublease document for Bank Leumi described a complex formula for calculating rent based on a base amount plus a pro rata share of operating expense increases after a 1982 base year, but the 1982 expense figure was not provided.
• On July 12, 1989, at plaintiffs' request, one of the defendants provided verbal instructions on how to calculate Leumi's rent.
• Plaintiffs followed these incorrect instructions and calculated the rent to be $9,327.61 per month; the error stemmed from using the wrong base year for operating expenses.
• One day before the escrow closed, defendants provided an estoppel certificate for Leumi (who refused to sign one), which defendants themselves prepared and signed, certifying the rent as $9,327.61.
• After the sale closed on October 27, 1989, plaintiffs discovered that Leumi's actual monthly rent was only $6,177.60.

Procedural Posture:

• Plaintiffs sued defendants in a California superior court (trial court) for intentional and negligent misrepresentation, breach of written contract, and money had and received.
• Plaintiffs filed a motion for summary adjudication, asking the court to rule as a matter of law that defendants had a duty to provide a correct estoppel certificate.
• The law and motion judge granted plaintiffs' motion on the issue of duty but denied it on other issues.
• The case proceeded to a jury trial.
• The jury returned a verdict in favor of the defendants on the fraud claims but in favor of the plaintiffs on the breach of contract claim, awarding damages of $131,000 plus interest.
• Defendants (appellants) filed a timely appeal of the judgment to the California Court of Appeal (intermediate appellate court).